National Insurance Manual

Aggregation of Earnings: Calculation and recording: NICs due at contracted-out and not contracted-out rate: Appropriate Personal Pension (APP) in place: Not contracted-out earnings exceed LEL but do not reach ET: 2001 to 2002 tax year

All examples on this page use the 2001 to 2002 rates and earnings bands. NICs are worked out using the exact percentage method and are based on the employee being a member of a Contracted-Out Salary Related (COSR) scheme.

When calculating NICs, priority is given to the contracted-out earnings. NICs are worked out on the total earnings using the shortest earnings period of the contracted-out employment(s).

Employee’s NICs are worked out at the appropriate contracted-out percentage rate on contracted-out earnings above the ET up to and including the UEL. Employer’s contributions are worked out at the:

appropriate not contracted-out percentage rate on any earnings above the UEL.

Example

T. Johnston earns £340 per month from his not contracted-out job, and £400 per month from his contracted-out job. Total earnings are £740 per month and the earnings period is monthly.

Employee’s NICs due: £30.41 (Table letter D)

Employer’s NICs due: £32.22 (Table letter D)

Employee’s NICs rebate due: £0.61

Employer’s NICs rebate due: £1.14

Recording the NICs due on form P11

NICs and NICs rebates will be recorded on two separate P11s - one for the not contracted-out earnings and one for the contracted-out NICs and NICs rebates. One form P14 should be completed at the end of the year showing two separate entries - one for the not contracted-out earnings details and one for the contracted-out NICs and NICs rebates under their appropriate contribution Table letters. The entries on the P11 will be as follows:

For not contracted-out earnings

National Insurance contributions

Note: LEL = Lower Earnings Limit, UEL = Upper Earnings Limit.

Earnings details

Contribution details

Rebate details

Earnings at the LEL (where earnings reach or exceed the LEL)

Earnings above the LEL, up to and including the employee’s Earnings Threshold